Articlehybrid2013

Cash Flow Statement as an Evidence for Financial Distress

35 citations0/0 files storedUniversal Journal of Accounting and Finance

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Financial Distress and Bankruptcy Prediction Financial Analysis and Corporate Governance Corporate Insolvency and Governance

Abstract

In this study, the effect of cash flow components on financial distress score is examined for 124 companies selected from Istanbul Stock Exchange (ISE). It is further analyzed whether cash flow components have an explanatory effect on bankruptcy risk and financial health of companies. Four separate models are constituted and Linear Regression Model is used to evaluate company age, company size, cash flow from operations (CFO), cash flow from investing (CFI) and cash flow from financing (CFF) activities as a function of financial distress score of companies. The results show that there is a negative relationship between CFO, company size and financial distress score of companies. On the contrary, CFF is observed to be positively related with the financial distress score. Meanwhile, it is further observed that the standardized coefficient of CFI is statistically insignificant and hence it does not provide any evidence for the financial weakness or bankruptcy risk of companies.

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References

1984The Capital Structure Puzzle 1984Methodological Issues Related to the Estimation of Financial Distress Prediction Models 1994Accounting earnings and cash flows as measures of firm performance 1982Time Paths in the Diffusion of Product Innovations 2011Cash Flow Patterns as a Proxy for Firm Life Cycle 1986The Relative Information Content of Accruals and Cash Flows: Combined Evidence at the Earnings Announcement and Annual Report Release Date 1990The incremental information content of cash-flow components 1992Accounting Earnings and Cash Flows as Measures of Firm Performance: The Role of Accounting Accruals

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